Two weeks ago Shire claimed it would be willing to recommend Takeda’s improved cash plus shares approach, as a fortnight of mutual due-diligence effectively began.
That evidently culminated in today’s recommended deal. It came as the ‘put up or shut up’ offer deadline was due to expire today.
Takeda is to pay US$30.33 per Shire share in cash with the balance paid in equity (either 0.839 Tokyo listed shares or 1.678 American Depository Securities).
In all the deal values Shire at £46bn, and, according to Takeda, it will create a R&D driven biopharmaceutical leader incorporated and headquartered in Japan.
“We firmly believe that this combination recognizes the strong growth potential of our leading products and innovative pipeline and is in the best interests of our shareholders, our patients and the communities we serve," said Shire chairman Susan Kilsby.
Undoubtedly, it is a big and significant deal and, as is customary for such transactions, there’ll be a certain amount of scrutiny and regulatory obstacles to navigate.
Various international clearances will be needed, and, of course, both company’s shareholders will have to give the go ahead.
In this regard, it should be noted that analysts saw Takeda’s final offer as being near the maximum of what would be possible so, perhaps, it remains to be seen just how supportive Japanese stakeholders will of the valuation terms. These are questions for other days, however.
Investors and market speculators alike, will now digest the valuation points and there’ll be the usual analysis and arbitrage as the transaction moves forward.
Importantly, there are other questions for investors to ask themselves beyond this deal.
From a sector perspective, it’s fair to say we’ve become accustomed to consolidation as a masquerade of growth - Valeant is probably the most well-known example, though, there are plenty others.
Corporate bartering and consolidatory axe-welding can, generally, be more predictably modelled than any clinical trial result can be forecasted.
And so it is that pharmaceutical portfolios seem to be perennially combined through ever larger mergers and takeovers.Dublin headquartered, London listed Shire has been in the M&A crosshairs for quite some time, with prior potential transactions mooted.
Abbvie’s aborted US$54bn deal was the most notable, and in the meantime the company itself acquired rare disease specialist Baxalta for US$32bn.
Deal capital is evidently sloshing around
As one of several big money deals presently on the table, the Shire-Takeda tie-up has some broader significance.
Valued at a proposed £46bn, the pharma-deal is in rich company.
SSE’s proposed £7bn merger with Npower has been lined up for an in-depth investigation amid competition concerns.
Comcast and Fox (and Disney) are tussling over a possible takeover of Sky.
Meanwhile, Amazon is being linked to any and every brick and mortar retail group with a decent property portfolio.
There’s an abundance of deal capital sloshing around the world’s blue-chip boardrooms and markets have been decidedly bullish for some time.
But, at the same time, only a casual glance across the political and economic headlines suggests macro-risks aplenty.
Some may likely question whether we’re seeing a run of deals near the top of the market, and, whether such a corporate flurry of activity may be a harbinger of a market that’s running out of new ideas.
Political and economic volatility
Brexit is still a screaming uncertainty, with tetchy negotiations and now with less than a year left on the countdown.
American politics seemingly resembles a polarising soap-opera, with President Trump seemingly bouncing from one potential flashpoint or scandal to another.
Meanwhile, the West’s relationship with China and Russia (with now fourth-time elected President Vladimir Putin) has appeared somewhat more confrontational – evidenced by diplomatic spats and trade standoffs. And, all that is before one begins to look to the minefield of issues in the Middle East.
Economically, much of the recent attention has been on interest rates and currency values - frankly, there are few other stock market catalysts about at present.
It has been about ten years since the global financial crisis led to unprecedented low interest rates, and, whilst the Federal Reserve has been creeping the US rate higher one quarter point at a time, the Bank of England and the ECB are having a tougher balancing act.
Price inflation is evident, living costs remain high and while austerity may be less of a political buzzword its effects haven’t gone anywhere.
The most recent economic statistics showed the UK has just muddled through one its slowest quarters for growth since the Brexit vote - experts forecast Q1 GDP at a measly 0.2% following the April PMI data - and patchy retail results suggest consumer spending was also weak.
In London, the FTSE 100 has held close to its all-time highs through recent weeks despite all the risks and apparent weaknesses. At around 7,567 on Tuesday, thanks partly to the increased interest in Shire, the London index is in relative striking distance from the recent ‘top’ at around 7,778.
So, whilst the London-listed multi-nationals and their worldwide counterparts look to big money consolidation, it is hard to not hesitate and wonder just how much real world growth remains right now.